In recent years, stock market observers have noticed that a small group of giant technology stocks, known as the Magnificent Seven, are driving a large portion of overall stock market returns.
Ten years ago, the FANGs (Facebook, Amazon, Netflix, Google, and maybe even Apple) were leading the charge.
These executives tend to make headlines because they go against the idea that the stock market is a rising tide and will lift all boats over time. In fact, a “thin” market – one in which a small number of top stocks rise while a large portion of the market retreats – is often seen as a signal of a potential pullback.
But research by Hendrik Bessenbinder, a professor at Arizona State University’s Carey School of Business, shows that over the past century, a small number of stocks driving the lion’s share of returns has been the norm, not the exception.
According to him, from 1926 to 2025, the weighted average return of about 30,000 stocks was more than 30,000%, while the median return was -6.9%. Overall, he found, just 46 companies accounted for half of the wealth created by the stock market over the past 100 years.
What does that mean for the average investor? It’s up to you how you interpret the data, Bessenbinder told CNBC Make It. While some investors may believe that investing in the right stocks has the potential to make huge amounts of wealth, others may think that picking winners is like finding a needle in a haystack, he says.
What investors can learn from 100 years of returns
One of the big lessons from Bessenbinder’s research is that, historically, it’s worth taking short-term risks to invest in the stock market for the long term if you want to accumulate wealth. Over the past century, the broader stock market has generated $91 trillion in wealth for investors, a study found.
In Mr. Bessenbinder’s 100-year sample, a value-weighted portfolio of all common stocks produced a return equal to $15,401 for every $1 invested. In contrast, for every dollar invested in U.S. Treasuries (government-backed bonds that are as close to a “risk-free” investment as possible), investors earn $25.34 for every dollar invested.
“In the short term, the stock market is very volatile. Anything can happen. The stock market could fall 50% within a year,” Bessenbinder says. “Over the long term, the stock market has become a tremendous wealth-building machine for investors.”
Bessenbinder found that the best-performing stocks were those that lasted through all or nearly all of the 100-year sample and enjoyed the benefits of compound interest. These include Altria (formerly Philip Morris), industrial company Vulcan Materials, and IBM, which began manufacturing punched card systems.
How to invest in the stock market for long-term results
Some investors might look at Mr. Bessenbinder’s track record and think they should find a market-leading company with staying power. But that’s easier said than done, he says.
“There’s a big difference between looking back and identifying these stocks and trying to identify them going forward,” he says. “The important question for investors is: Do I think I have the skills?”
Some investors do that. But for most people, the odds are against them. When comparing individual stock returns to a weighted portfolio of all stocks, Bessenbinder found that only 27.6% of stocks outperformed the overall market. Investors who invested in about 60% of the stocks in Bessenbinder’s sample would have experienced a decline in their wealth.
To use a more concrete example, consider a comparison to a benchmark index of a professional mutual fund manager. Last year, 79% of large corporate equity fund managers failed to keep up with the S&P 500 index, according to data from S&P Dow Jones Indices. This marks the 16th consecutive year that more than half of the pros have lost to the index.
“What you don’t want to spend time on[picking stocks]is seeing how the people who make a living doing it are failing,” said Sam Stovall, chief investment strategist at investment research firm CFRA.
That’s why Stovall and other investment experts suggest holding a broadly diversified portfolio of stocks, which virtually guarantees you’ll own some of the big winners along with some of the losers. Additionally, by casting a wide net, you avoid the possibility of a single investment decline derailing your performance.
Is it possible to make more profit if you choose only the best stocks? Of course. But for most people looking to build compound wealth while avoiding big losses, the less exciting path is probably smarter, Doug Bone Perth, a certified financial planner and founder of Born Fied Wealth, told CNBC Make It in January 2025.
“The right thing for most retail investors is to participate in the market for the long term by being a passive investor, keeping costs low and managing your emotions when the going gets rough,” he said. “These proven, long-term, very disciplined investment methods are what ultimately work.”
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